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Reliance Naval and Engineering Limited (NSE:RNAVAL) shareholders will doubtless be very grateful to see the share price up 39% in the last month. But that doesn’t change the fact that the returns over the last three years have been stomach churning. In that time the share price has melted like a snowball in the desert, down 83%. So we’re relieved for long term holders to see a bit of uplift. Of course the real question is whether the business can sustain a turnaround.
While a drop like that is definitely a body blow, money isn’t as important as health and happiness.
See our latest analysis for Reliance Naval and Engineering
Given that Reliance Naval and Engineering didn’t make a profit in the last twelve months, we’ll focus on revenue growth to form a quick view of its business development. When a company doesn’t make profits, we’d generally expect to see good revenue growth. That’s because it’s hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
Over the last three years, Reliance Naval and Engineering’s revenue dropped 25% per year. That’s definitely a weaker result than most pre-profit companies report. And as you might expect the share price has been weak too, dropping at a rate of 45% per year. Never forget that loss making companies with falling revenue can and do cause losses for everyday investors. It’s worth remembering that investors call buying a steeply falling share price ‘catching a falling knife’ because it is a dangerous pass time.
The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
Balance sheet strength is crucual. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
We regret to report that Reliance Naval and Engineering shareholders are down 66% for the year. Unfortunately, that’s worse than the broader market decline of 0.1%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there’s a good opportunity. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 20% over the last half decade. We realise that Buffett has said investors should ‘buy when there is blood on the streets’, but we caution that investors should first be sure they are buying a high quality businesses. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.